(1) Field of Invention
The present invention relates to the field of electronic commerce conducted in a client-server network environment, typically, the World Wide Web. Specifically, the invention relates to issuing performance bonds and guaranties over the Internet, as in cases where the party to be bonded is an Internet seller or bidder in an on-line auction environment.
(2) Background Art
The growth of electronic commerce has been accompanied by new risks to consumers. Enabling long-distance, anonymous transactions between individuals, user-to-user auction sites on the World Wide Web have given rise to severe problems of fraud and intellectual property piracy. These activities are also common on sites operated by fraudulent sellers themselves.
Various solutions have been attempted. Electronic escrow services, where a third party is injected between buyer and seller to verify that a quid pro quo exchange occurs, represent one proposed solution. But such services, such as escrow.com, have proven to be of limited value and have gained only limited market acceptance, mainly because escrow services (a) create unavoidable delays in effecting the exchange and (b) add significant costs to every transaction, even when the exchange goes well. Moreover, since escrow transactions must be arranged on an individual basis, the use of an on-line escrow approach is simply not feasible for high-volume sellers.
Another problem plaguing online auctions today is that of “deadbeat bidders,” bidders who win an auction but never pay for the item purchased. Deadbeat bidders not only cost the seller a sale to other bidders who would have honored their contractual obligation to pay, but deadbeat bidders also cause sellers out-of-pocket expenses, since the auction company's commission typically must be paid by the seller whether or not she receives payment from the winning bidder. Escrow does not address the problem of deadbeat bidders, nor do electronic payment services, such as PayPal.
What is needed is a solution that effectively eliminates the risk of buying and selling over the Internet while adding little or no transactional cost in terms of time and money.
Performance bonding is a known means of legally shifting the risk of a given loss, a performance bond being a contractual agreement between the surety, the principal and the obligee whereby the surety agrees to protect the obligee if the principal defaults in performing the principal's contractual obligations. Black's Law Dictionary, 6th Ed.
A guaranty is similar in purpose to a bond. A guaranty is a collateral agreement for performance of another's undertaking in which the guarantor agrees to satisfy the debt of another (the debtor), only if and when the debtor fails to repay (secondarily liable).
Collateral is property which is pledged as security for the satisfaction of a debt or performance of a principal obligation.
Letters of credit are a known means of facilitating transactions, whereby a bank or other institution agrees to honor demands for payment made in compliance with specified conditions.
A penal sum is a monetary sum agreed upon in a bond to be forfeited if the condition of the bond is not fulfilled. In this document, the term “coverage limit” may be used interchangeably with penal sum.
Automatic means of adding an electronic image and accompanying text to an Internet auction listing or other World Wide Web page is also known. For example, the company known as Honesty.com enables Internet auction sellers to visit the Honesty.com Web site, enter an auction site name, auction number, email address and password, and then have the Honesty.com logo and a unique “hit counter” added to the given auction listing automatically.
Means of searching the Internet and World Wide Web for infringing uses of digital images and text is also known, such as the automated search technology designed by iParadigms for plagiarism.org or the techniques known as “digital watermarking” or “fingerprinting.”
Merchant card services enabling Visa or MasterCard transactions in real-time over the Internet are known.